Why are agencies great catalysts for tech companies?

Over the years I’ve noticed a few agencies that created tech products and then span them out as a separate business. Last week I took to Linkedin to see how wide-scale an occurrence this actually was.

As you’ll see, we rapidly came up with the following list of businesses…and that’s just the start:

Moz from SEOMoz

Basecamp from 37 Signals

Decibel Insight from Decibel agency

Harvest came from Iridesco

Formisimo from the E Word

Ruler Analytics from Epic New Media

ShopBlocks from Tecmark

Padoq from Nothing but Epic

ShopIt from ProjectOcto

Aeroparker from KMP Digitata

 

Given the nature of my LinkedIn network, this list obviously has a UK and digital marketing bias.

 

So why does this happen?

Dan from Ruler Analytics described the creation of the platform as “scratching their own itch” since their clients had specific reporting requirements that weren’t being met by existing players like Google Analytics.

Meanwhile, Adam at Shopit told me,  “We love e-commerce here and felt that many popular platforms out there offered the wrong functionality and/or pricing model for clients who didn’t have a lot of money to start with, but “wanted it all” nonetheless. So we aimed to build our own bespoke one, that we have since rolled out wider.”

As an agency, you’re often able to see the same problems and challenges surface across multiple clients, and if there isn’t an ideal solution out there, it makes sense to try and develop it.

 

Scalability

Agencies are service businesses so rely heavily on people. For nearly all agencies, staff costs are their largest investment by far, and if you want to double in size you’ll likely have to double your headcount, or something near it.

As a result, an agencies ability to grow is constrained by its expertise at retaining existing employees and recruiting great new ones.

At a time where the digital industry is struggling with a skills shortage, this further challenges growth.

A tech product, while still requiring great people, has different limiters on growth, and can often scale faster.

 

Making the break

The real challenge is being able to separate out the tech product into its own business. All too often in the agency world, unforeseen client pressures require resource to be shifted from the tech platform back into the agency, thus halting product development, and sometimes allowing a competitor to overtake.

All of the examples above either operate as separately registered companies or the agency morphed into the tech business and adapted its business model.

In my opinion, this is the key reason we don’t see even more products born out of the agency world.

 

I’m genuinely fascinated by this trend so please comment below with other examples.

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